wax (< 20)

June 2011

0

Whole Foods Market, Inc. (Nasdaq: WFM) is the world’s leading natural and organic foods supermarket and America’s first national “Certified Organic” grocer whose core mission is devoted to the promotion of organically grown foods, food safety concerns, and the sustainability of the world's entire ecosystem.

The company has one operating segment, natural and organic foods supermarkets, currently operating 299 stores in the United States, Canada, and the United Kingdom. The company is based in Austin, Texas.

The stock closed recently at $61.17, with Resistance at $66.87, a 9% increase from the recent close.

The stock price should find First Support at $60.47, a 1% decline from the recent close, and Second Support at $52.29, a 15% decline from the recent close. Should the stock price break through Second Support, the next level of support is $33.96, a 44% decline from the recent close.

Daily Relative Strength is currently 61, with the stock price nearing an oversold condition.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Whole Foods Market, Inc., the company had a year over year earnings growth of 40%, ending FY10 with earnings of $2.99 per share.

With a trailing twelve month PE currently at 20, the spread between earnings growth and the PE is about 2, meaning that for an investor focusing on earnings growth, the stock should be trading near $67.01, a $5.84 increase from a recent close.

Fundamental Investment Valuation

Liquidity: The company ended FY10 with a Current Ratio of 1.55, a Quick Ratio of 0.80, a Cash Ratio of 0.62, and a Cash Conversion Cycle of 0.62 days. In addition, Goodwill and Intangibles comprised 18.4% of Total Assets, and the company ended the year with a Book Value of $13.80 and a Tangible Book Value of $9.53.

Profitability: FY10 found the company with a Gross Margin of 38%, an Operating Margin of 7.5%, a Net Operation Margin After Taxes (NOPAT) of 5.7%, a Return On Invested Capital (ROIC) of 19%, and an Effective Tax rate of 40%.

Debt: The company ended FY10 with Total Debt of $508.7 million, a year over year decrease of 44%. Additionally, the company paid an average annual Interest Rate 6.49%, a year over year increase of 1.5%, and had a Debt to Cash Ratio of 1.1, and a Debt to Equity Ratio of 0.21.

Cash Flow: The company's FY10 Operating Cash Flow was $4.79 per share, a year over year decrease of 6%. The company also ended FY10 with Free Cash Flow of $1.12 per share, a year over year increase of 21%.

Dividends: During FY10 the company paid a $0.05 per share dividend, a 65% year over year decline.

Fundamental Valuation: Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $40-$44 range.

Value Thoughts

In May of this year the company announced its trading symbol had changed from WFMI to WFM, an event the markets seemed to appreciate. A few weeks later, the company announced it had retired all of its long-term debt, an event we thought was a very big deal. Apparently nobody else did. Sorta boring, huh?

Considering a Recent Close of $61.16, an estimated Merger and Acquisition payback of 15 years (assuming EBITDA remains the same), year over year earnings growth of 40%, as well as year over year free cash flow growth of 21%, we think, on a fundamental investment basis, the stock is currently OVER PRICED, and not a candidate for additional research for the Wax Ink Portfolio..

Wax

Disclaimer

We have no position in Whole Foods Market, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme. [more]

Recs

0

Costco Wholesale Corporation (Nasdaq: COST) operates membership warehouses based on the concept that offering its members low prices on a limited selection of nationally branded and selected private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. [more]

0

Insituform Technologies, Inc. (NYSE: INSU) is a worldwide provider of proprietary technologies and services for rehabilitating sewer, water, energy and mining piping systems and the corrosion protection of industrial pipelines.

Business activities include research and development, manufacturing, distribution, installation, coating and insulation, cathodic protection and licensing. Its products and services are currently utilized and performed in 70 countries across six continents.

Incorporated in Delaware in 1980, under the name Insituform of North America, Inc. the company's business model has evolved from purely licensing technology and manufacturing materials to performing the entire Insituform® CIPP (cured-in-place pipe) process and other trenchless technologies and rehabilitating and performing corrosion protection services for industrial pipelines in most geographic locations.

As of December 31, 2010 the company held 59 United States patents relating to the Insituform® CIPP process, the last of which will expire in 2027, and had 12 pending United States non-provisional patent applications relating to the Insituform® CIPP process.

In addition, the company has obtained and is pursuing patent protection in its principal foreign markets covering various aspects of the Insituform® CIPP process. As of December 31, 2010, there were 152 issued foreign patents and utility models relating to the Insituform® CIPP processes, and 104 applications pending in foreign jurisdictions.

The stock closed recently at $24.14, with first First Resistance at $25.08, a 4% increase from the recent close and Second Resistance at $25.63, a 6% increase from the recent close. Should the stock price breakthrough second Resistance, it should find a ceiling near $30.00, 24% increase from the recent close.

The stock price should find Support at $18.52, a 23% decline from a recent close.

Relative Strength is currently 40, correcting from an oversold condition. With a ceiling and support at essentially the same levels, we have no short-term interest in this stock at the present time.

Fundamental Investment Considerations

Liquidity: The company ended FY10 with a Current Ratio of 2.69, a Quick Ratio of 1.69, a Cash Ratio of 0.66, and a Cash Conversion Cycle of 13 days. In addition, Goodwill and Intangibles comprised 28% of Total Assets. The company had a Book Value of $15.38 and a Tangible Book Value of $8.90.

Profitability: For FY10, the company had a Gross Margin of 28%, an Operating Margin of 12%, a Net Operation Margin After Taxes (NOPAT) of 9%, a Return On Invested Capital (ROIC) of 21%, and an Effective Tax rate of 27%.

Debt: For FY10 the company had Total Debt of $105 million, a year over year decrease of 10%. Additionally, the company paid an average annual Interest Rate 8.3%, an 1.04% year over year increase, had a Debt to Cash Ratio of 0.91, and a Debt to Equity Ratio of 0.17.

Cash Flow: The company's FY10 Operating Cash Flow was $3.14 per share, a year over year decrease of 52%, and its Free Cash Flow was $2.13, a year over year decrease of 65%.

Dividends: During FY10 the company paid a dividend of $0.01 per share, a 66% year over year decrease. Based on a recent close of $24.14, the Dividend Yield is 0.04%.

Earnings Growth Valuation

Earnings growth valuations are based on the spread between year over year earnings growth and the current PE.

In the case of Insituform Technologies, Inc., the company had a year over year earnings decline of 50%, ending FY10 with earnings of $2.11 per share.

With a trailing twelve month PE of 11, the spread between earnings growth and the PE is about (4.4), meaning that for an investor focusing on earnings growth, the stock should be trading near $14.87, a $9.27 decrease from a recent close.

Fundamental Valuation

Based on our review of the company's latest annual financial information we think a Reasonable Value Estimate for the company is in the $39-$41 range.

Value Thoughts

Considering a recent close of $24.14, an estimated Merger and Acquisition payback of 8.1 years (assuming EBITDA remains the same), a year over year earnings decline of 50%, as well as a year over year free cash flow decline of 65%, we think the stock is currently UNDER PRICED, and a candidate for additional research for the Wax Ink Portfolio.

Wax

Disclaimer

We have no position in Insituform Technologies, Inc., and no plans to initiate a position in the next 5 business days. Additionally, we have received no compensation to write about a specific stock, sector, or theme. [more]